Record White House budget deficit omits trillions in Fannie and Freddie liabilities

Font Size:

The record budget deficits announced by the White House on Monday fail to include the federal government’s share of Fannie Mae and Freddie Mac’s $6.3 trillion in liabilities — though the Director of the Office of Management and Budget once thought it should.

Following a 2008 bailout that made the government a majority stakeholder in the mortgage companies, then-Congressional Budget Office Director Peter Orszag said, “Now that the authority is indeed being exercised, it is CBO’s view that the operations of Fannie Mae and Freddie Mac should be directly incorporated into the federal budget.”

“Doing so reflects a very tight nexus between the firms and the federal government and the degree of control being exercised by the federal government over their operations.”

The government bailed out Fannie and Freddie by buying preferred stock, infusing the two firms with capital. The 2011 budget reports that the government has spent $110.6 billion on Fannie and Freddie to date; in December, the Treasury department said it would buy more than $400 billion in preferred stock if their losses grow.

The government now owns 80 percent of the companies. While Fannie and Freddie together are liable for more than $6 trillion in mortgage securities, the government has not reflected that it might be on the hook for a significant percentage of those securities.

An OMB official told The Daily Caller that Fannie and Freddie are treated as non-federal entities and that an estimate of the Treasury’s financial assistance through the Preferred Stock Purchase Agreements (PSPAs) with the entities is accounted for in the budget. While an estimate of their total liabilities — the trillions in mortgage securities they guarantee — is included, it’s considered supplemental information, “not intended to measure the deficit impact.”

When the Federal Housing Finance Agency (FHFA) announced it was taking control of the entities in 2008, the government assumed responsibility for most, if not all, these guarantees.

Rep. Barney Frank, the chairman of the House Financial Services committee, has called for dismantling them in their current form, and while many policy makers may agree, details on how to do so remain scant.

“The administration continues to monitor the situation of the GSEs closely and will continue to provide updates on considerations for longer-term reform of Fannie Mae and Freddie Mac as appropriate,” said the OMB.